2 girls sitting on floor by Nathan Dumlao courtesy of Unsplash.

The Most Common Accounts to Fund for a Child or Grandchild

Anthony Sandomierski |

Saving for Children: Trump Accounts vs. UTMAs, 529 Plans, and Roth IRAs

We have many clients who want to give money to children and grandchildren but are always unsure on what the best options out there are. Over the years, several account types have emerged to help families save for education, early investing, and long-term wealth. Recently, so‑called “Trump Accounts” have been discussed alongside more established options like UTMAs, 529 college savings plans, and Roth IRAs for kids.

Each option serves a different purpose, comes with different tax rules, and offers varying degrees of control. Understanding these differences is essential to choosing the right strategy for your family.

Trump Accounts (Proposed)

“Trump Accounts” is a term commonly used to describe proposed child investment accounts that have been discussed in policy circles. While details vary depending on the proposal, the general concept is:

  • Accounts opened for children at birth or a young age
  • Seeded with an initial government contribution
  • Designed for long-term investing
  • Funds restricted to approved uses (such as education, a first home, or retirement)

Key Characteristics

  • Tax treatment: Generally envisioned as tax‑advantaged growth in that the growth is not taxed until the money in the account is distributed
  • Control: Restricted access until adulthood
  • Flexibility: Limited to permitted uses
  • Current status: Not widely available as a standardized, permanent account type

Planning takeaway: Because the growth on these accounts are taxed as ordinary income, they will likely be less popular compared to the other options listed here.

UTMA Accounts (Uniform Transfers to Minors Act)

A UTMA is a custodial brokerage account that allows adults to invest on behalf of a minor.

How UTMAs Work

  • Assets are irrevocably gifted to the child
  • A custodian manages the account until the child reaches the age of majority (usually 18–21, depending on the state)
  • At that point, the child gains full control of the funds

Pros

  • Broad investment flexibility (stocks, ETFs, mutual funds, etc.)
  • No contribution limits
  • Can be used for any purpose that benefits the child

Cons

  • Limited tax benefits (subject to the “kiddie tax” rules)
  • Becomes the child’s asset at adulthood, no parental control afterward
  • Can reduce eligibility for need‑based financial aid for college (if the child will even be eligible for need based aid)

Best for: Families who want maximum investment flexibility and are comfortable with the child eventually controlling the assets outright.

529 College Savings Plans

A 529 plan is specifically designed to help families save for education in a tax‑efficient way.

Key Features

  • Contributions grow tax‑deferred
  • Withdrawals are tax‑free when used for qualified education expenses
  • Can be used for college, trade schools, and (in many cases) K‑12 tuition

Pros

  • Strong tax advantages
  • High contribution limits
  • Account owner (not the child) retains control
  • Beneficiary can be changed to another family member
  • If the money is not used for college it could eventually be moved into a Roth IRA for the child (strict rules must be followed and there are limits to this)

Cons

  • Funds are primarily restricted to education
  • Non‑qualified withdrawals may incur taxes and penalties

Best for: Families with a clear goal of funding education while retaining long‑term control over the account.

Roth IRAs for Children

A Roth IRA for a child can be a powerful long‑term wealth‑building tool but it comes with one critical requirement: the child must have earned income.  We get a lot of questions on this.

How It Works

  • Contributions are limited to the child’s earned income (up to annual IRS limits)
  • Contributions are made with after‑tax dollars
  • Growth and qualified withdrawals are tax‑free

Pros

  • Decades of tax‑free compounding
  • Contributions (not earnings) can be withdrawn at any time without penalty
  • Excellent tool for teaching investing discipline

Cons

  • Requires legitimate earned income
  • Lower annual contribution limits
  • Funds are intended for retirement, not short‑term goals

Best for: Children with earned income and families focused on instilling long‑term retirement planning habits early.

Choosing the Right Strategy

The best approach is picking which option fits your intent/purpose of the contribution:

  • A 529 plan for education funding
  • A Roth IRA for long‑term retirement growth if the child has earned income
  • A UTMA for flexible, non‑education goals

The right mix depends on your income, tax situation, estate planning goals, and how much control you want your child to have in the future.